Anti-Bribery and Corruption - KPMG

1 Anti-Bribery and Corruption : Rising to the challenge in the age of globalization KPMG INTERNATIONAL. 02. 06. 04. 12. 15. 10. 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Contents Foreword 02. Executive summary 03. Introduction 04. Tracking the go-betweens 06. Enforcing compliance 10. Managing cross-border risks 11. Better controls needed 12. Finding the needles 13. Conclusion 14. Methodology 16. Contributors 20. Acknowledgements 20. 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 2. Foreword Corruption continues to corrode the global economy, 18 years after member governments of the Organization for Economic Co-operation and Development (OECD) signed a convention1 that establishes legally binding standards to criminalize the bribery of public officials.

2 Since then, a growing number of governments have passed Anti-Bribery and Corruption (ABC) laws. The is no longer the lone policeman on the beat; the UK and other European governments have implemented anti- Corruption regulations too, as have emerging economies including China and Brazil. Despite tougher enforcement of regulations to combat bribery and Corruption , illicit payments to counter-parties continue to burden economies, diverting resources from people and places where they could do most good. In 2013 the World Bank estimated2 that the amount of bribes worldwide totals $1 trillion a year. Companies may consider themselves sandwiched between counter-parties asking for bribes and regulations attempting to curb the practice, but this would be a mistake. Rather than succumbing to a sense of victimhood, every company needs to ask itself some fundamental questions about why they are in business and what it s going to take to conduct business ethically everywhere.

3 This report, based on a global survey of 659. respondents around the world, offers insights into the challenges they face complying with this new world of ABC regulation and the pressures of looking the other way when a third party acts as intermediary for the bribe. For their part, companies are taking the initiative to many levels to curb Corruption , from the lonely outpost in a far-off country to a multilateral effort to raise business standards. Petrus Marais Jimmy Helm Global Head of Forensic Global Head of Anti-Bribery &. Corruption Services 1. 2. ,,contentMDK:20190295~menuPK:34457~pageP K:34370~piPK:34424~theSitePK:4607, 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Anti-Bribery AND Corruption : RISING TO THE CHALLENGE IN THE AGE OF GLOBALIZATION 3. Executive summary KPMG conducted a worldwide online survey of corporate risk leaders to find out the strengths and weaknesses of their companies' programs to combat bribery and Corruption .

4 There were 659 responses, the main findings from which are as follows: There is a sharp increase in the proportion of respondents who say they are highly challenged by the issue of ABC compared with a survey KPMG conducted four years earlier. As companies continue to globalize, management of third parties poses the greatest challenge in executing ABC programs. Despite the difficulty of monitoring their business dealings with third parties, more than one third of the respondents do not formally identify high-risk third parties. More than half of those respondents with right- to-audit clauses over third parties have not exercised the right. ABC considerations are accorded too low a priority by companies preparing to acquire, or merge with, other corporations across borders. Respondents complain they lack the resources to manage ABC risk. A top-down risk assessment would help companies set priorities, but executives admit that an ABC.

5 Risk assessment is one of their companies' top challenges. Data analytics is an increasingly important and cost-effective tool to assess ABC controls. Yet only a quarter of respondents use data analysis to identify violations and, of those that do so, less than half continuously monitor data to spot potential violations. 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 4. Introduction Globalization has entered a new phase, its procedures to consider the local governments. And once a company posing greater challenges for ABC environment in which it operates, says is acquired, differences in corporate compliance than before. Two trends are Nigel Layton, Partner, KPMG Forensic culture, processes and systems can driving these changes. First, a growing practice in London. make it hard to integrate the target number of governments around the company into a global ABC compliance Second, as companies globalize their world are tightening ABC regulations structure.

6 These two globalizing trends operations, supply chains become or introducing new laws. Enforcement have created a uniquely challenging stretched. Corporations rely more agencies are working together environment. heavily on third parties than before to to stem Corruption . International do business in far-flung parts of the The survey of companies around the companies must therefore create world, often in areas where there is world, conducted by KPMG with the a strategy of compliance that is not a high risk of Corruption . M&A poses assistance of Singapore Management only global but also takes account of its own challenges, because it is University, shows that companies are national differences in regulation. A. often difficult for the acquirer to know attempting to rise to the challenge . global company should have a global before an acquisition exactly how the and that a great deal more needs to be compliance program and perform a target company does business with done to create a sturdy and efficient global risk assessment, while tailoring 2015 KPMG International Cooperative ( KPMG International ).

7 KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Anti-Bribery AND Corruption : RISING TO THE CHALLENGE IN THE AGE OF GLOBALIZATION 5. ABC structure that is effective in every the proportion of respondents who There's a greater understanding of the part of the world, not just in the highly said that ABC compliance was highly issues faced, but this doesn't mean they developed economies. Corruption can challenging. More than double the are easier to deal with.. rear its ugly head in remote locations or number than in 2011 found it difficult This report analyzes some of the key in a company's backyard. Companies to monitor and evaluate compliance risks companies face when dealing recognize this growing difficulty, (see page 17). A growing number of with bribery and Corruption . It examines according to the survey. companies are finding it more difficult to some of the ways in which they are deal with ABC issues, because of their In 2011, we asked respondents in the dealing with them and what needs to be complexity, increasing globalization of and the UK their views of ABC done to meet the global challenge.

8 Their operations and the need to deal and are now able to compare their with these matters in many different responses to those of respondents jurisdictions, says Jimmy Helm, of listed UK and companies Partner, KPMG Forensic in Central &. in the latest research. The trend is Eastern Europe and Global Leader, enlightening. The latest responses KPMG Anti-Bribery & Corruption show a surprisingly steep increase in Services. USA companies UK companies Respondents US 2011 Ranking 2011 US 2015 Ranking 2015 UK 2011 Ranking 2011 UK 2015 Ranking 2015. Auditing third parties for compliance 1 1 1 1. Difficulty in performing due diligence over foreign agents/third parties 2 4 2 2. Variations in country requirements data privacy etc. 3 3 2 3. Company's expansion into high growth economies 4 5 3 8. Monitoring and evaluating compliance 5 9 4 10. Cultural/language issues 2 5 7. Lack of Internal resources 39% 5. 3. Difficulty in identifying & assessing risk Source: Global Anti-Bribery and Corruption Survey, KPMG International, 2015.

9 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 6. Tracking the go-betweens 2015 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Anti-Bribery AND Corruption : RISING TO THE CHALLENGE IN THE AGE OF GLOBALIZATION 7. Managing third-party risk is the Ranking of top ABC challenges biggest challenge that companies face All respondents 2015. in the field of bribery and Corruption . We asked our respondents to rank a number of key issues in terms of the level of difficulty. Their answers 1 Auditing third parties for compliance indicated that two of the top three issues of concern regarding third 2 Variations in country requirements-data privacy etc.

10 3. parties were auditing for compliance and the difficulty in conducting due Difficulty in conducting due diligence over foreign agents/third parties diligence over foreign agents/third parties. (The second biggest challenge is dealing with the variation in national 4 Lack of internal resources 5. regulations pertaining to bribery and Corruption ). Difficulty in identifying & assessing risk These and other challenges highlighted in the survey are especially worrisome because a very high proportion of 6 Cultural/language issues bribes are now paid either by third Source: Global Anti-Bribery and Corruption Survey, KPMG International, 2015. parties to the ultimate recipient or to seemingly unrelated parties acting on behalf of the ultimate recipient. The identify high-risk third parties. For or a very poor one to identify high-risk interposing of third parties makes it those respondents that do have a third parties and no clear ranking of them harder to police, says Helm.